Is the USD Still Strong?
The U.S. economy is having major issues right now; all you need to do to confirm this is look at what the stock market has done over the last two weeks. But there is some silver lining to this: Europe’s economy is doing even worse over the same timeframe. The S&P 500 is down about 8 percent over the first two weeks of 2016, but major European indices are down around 10 percent over the same period. The German DAX is being hit the hardest, with losses closing in on 11 percent. At the same time, the British FTSE 100 is being hit far less severely, with losses of only about 6 percent throughout the first 10 days of 2016.
This is something that currency traders must take careful note of. The old nugget of wisdom that says when a stock market goes up, the dependent currency necessarily must go down needs to be reexamined. The U.S. economy’s failures should, theoretically, lead to a stronger dollar. But when European markets tank even more, then there is potential for the euro to become even stronger than the U.S. dollar, simply because there are more economic problems with European stocks than there are with American stocks. It is logical, but definitely not something that every trader would pay attention to.
The complex relationship between U.S. stock market, the U.S. dollar, the euro, and the European stock market are all fundamental analysis tools that even the most technically oriented of traders should have a firm grasp on. This is a tough, imprecise, science, but there are plenty of opportunities for traders to take advantage of right now. Binary options have a huge advantage right now because of the fact that timeframes can be customized to reflect short gains, yet still receive large profits. We now have a firm idea that although the U.S. dollar should be moving upward because of the boost given it by the stock market, but other factors, especially the currency that you pair the USD up with, need to be examined in thorough detail, too. In this instance, the world’s most heavily traded asset—the EUR/USD—has pressure pointing more in the euro’s favor, and less in the dollars. That’s true even if the fundamentals say that the dollar should be strong. Other fundamentals say the euro should be even stronger.
Of course, this situation may be short lived. What is happening to the European stock market is not well established yet, even more so than what’s happening in the U.S. The developing situation needs to be monitored as you formulate trades, and taking less risk by limiting exposure is important here. Short expiries with binary options will force this, or you can just stay disciplined with your Forex trading by using tighter stop measures in your trading. In order to keep profits up, though, you may need to increase leverage. What you do with this needs to be addressed on a case by case basis, incorporating your needs and skills as a trader in with current market conditions.
The U.S. economic crash that is currently going on has been attributed to oil and China, and that makes some sense, even though the downside is far worse than it realistically should be. While analysts are attributing much of the European decline to the same causes, this is far more surprising because of the fact that the Eurozone relies far less upon either of these two things than the U.S. does. Still, because it is happening, it’s something that you need to pay attention to, and formulate your trades around it accordingly.